Start a Franchise Business in Hong Kong

Franchise companies are becoming the go-to options for new entrepreneurs looking to start their own businesses.

Franchise companies are becoming the go-to options for new entrepreneurs looking to start their own businesses. Investors who start a franchise business in Hong Kong would have access to an already tested and successful business model, providing a higher success rate to their long-term goals. The primary benefit of opening a franchise business in Hong Kong is related to a more natural company formation process and management model, and more importantly, having support from an existing company framework.

Hong Kong’s high per capita income and its legal framework have attracted many foreign franchisors to set up their sub-franchise in the city. As a matter of fact, opening a franchise business in Hong Kong is relatively easy as there is no specific exchange controls, no legislation governing franchising operations, and no foreign equity participation or local management participation regulations. But before opening a franchise business in Hong Kong, you need to understand what is a franchisee and how it will help you in attaining a high success rate.

The Franchisee and the Franchisor

Franchising is a business model that can be advantageous for both parties, from a franchisor who are selling an already existing and tested business model, and to a franchisee who wishes to acquire it. It is a way in which an already successful company can expand their business in several well-developed business sectors of Hong Kong.

In a franchising partnership, the owners or franchisor grants the use of its services and products to another party(the franchisee), that will internalize it and become an affiliate. But before starting a franchise business in Hong Kong, both parties are required to comply with a few requirements.

Franchising in Hong Kong

Many international brands target Hong Kong as their regional franchising hub, with the recognized global franchise brands name, including Pizza Hut, McDonald’s, Starbucks, 7-Eleven, KFC, and Subway, having a foothold in Hong Kong. In fact, Hong Kong Franchise Association of Hong Kong estimates about 20% of the franchises are in retailing, 43% in the catering business, and 37% in other services in Hong Kong.

Franchising is a simple business model of company development and one of the most comfortable means of doing business in Hong Kong, as it presents a set of clear opportunities and advantages to investors.

It is a method of marketing services and goods in the well-developed sectors of Hong Kong such as, beverages and food sector, the services industry, convenience stores, fashion stores, the retail areas, travel businesses or companies which are involved in the training and education sectors.

As a matter of fact, Hong Kong has an edge in assisting growing franchising businesses in Asia, including its world-class services of supporting, the availability of industry talents, access to quality franchisees, showcase role, track record of organizing exhibitions, extensive business connections in Asia and market sensitivity.

Benefits of Franchising in Hong Kong

It’s no surprise that many people who were considering managing their own business now are actually willing to open a franchise business in Hong Kong, because of an ample number of advantages of joining this industry.

The primary benefit of becoming a franchise is that the business will have established services or products. The franchised business also has a high success rate rather than the standard set-up business, because of the mistakes in operating the company will have already been ironed out.

Another tremendous advantage is the franchise’s brand name. Whether it is on the international level, local level, or somewhere in between, the branding of a franchise always serves as an edge before and after you invest in a particular franchisee.

The franchisee will have access not only to the company know-how, but also to the special training for operating the business model. If the franchised business is a part of networking franchisee, in that case, it will also help you in providing support and assistance primarily in the early stages of development.

Steps for opening a franchise business in Hong Kong

The first step of franchising in Hong Kong is to explore options which are available in the well-known business sectors of Hong Kong. In fact, investors can also open restaurants in Hong Kong because it’s all based on your selection of the franchise.

Regardless of the business field, investors are always advised to perform a proper due diligence process and market analysis. Once the franchise is chosen, both the parties are required to comply with the criteria described in the Franchise Agreement.

Moreover, the franchise has to pay the initial fee and then a percentage of business profits. Most of the franchisors in Hong Kong are open limited companies, and you can easily incorporate one as per the requirements for your company formation and can also do the registration with Startupr.

Franchise Agreement

The franchise business model runs on agreements and a model of operation. The franchise agreement is signed between the business model to another independent company (the franchisee) and business (franchisor) who grants usage of its brand. Both parties in an agreement will observe their own legal requirements that will comply with several operational criteria, and the essential features will include:

  • The franchise makes periodical payments to the franchisor.
  • The franchisor exercises continuing control over the franchise.
  • The franchisor allows the franchise to use its name or brand.
  • The franchisor assists the franchise.

Regulation for franchising in Hong Kong

There are no specific franchising legislation or regulatory regimes that governs the offer and sale of franchises in Hong Kong. However, various other laws apply to the agreements that govern these business entities. There are no franchise-specific restrictions on the local management or foreign franchisor who wish to enter the Hong Kong market.

There are also no capital restrictions on capital flowing in and out of Hong Kong. Foreign entities are free to grant their local partners master franchise or development rights. Foreign entities are also open to own real equity or property in a local business.

Hong Kong has a straightforward tax regime. The franchise needs to pay profits tax on income sourced in Hong Kong, as there is no tax on capital gains, services, dividends, and goods. However, ‘withholding tax’ is levied on income which is derived from the use of intellectual property rights in Hong Kong.

The Competition Ordinance is hugely relevant for business owners that are willing to acquire a franchise in Hong Kong, as it is the necessary steps to ensure that the intellectual property belonging to the franchisor is well protected. The purchase or sale of goods by a franchise in Hong Kong is permitted as long as these actions observe the competition law in Hong Kong.

Conclusion

Being a leading services platform and a free or service-oriented economy, Hong Kong is an attractive location to base a franchise for many entrepreneurs. However, be sure to do the research work and market analysis before signing a franchise agreement in Hong Kong.

Business sectors such as food and beverages sectors and fast-food or catering, retailing and convenience stores are well-known business sectors for franchise business in Hong Kong. If you are interested in company formation in Hong Kong, make the right choice with your hard-earned money and time, and head over to Startupr for the registration and incorporation of your franchise business.